How the sharing industry gets insurance

Sharing may sound utopian. But the sharing industry has a dark side and its name is insurance.

“Probably one of the hardest things we had to do in order to start our company was to get the insurance,” says Seth Peterson, co-founder and CEO of AllYouCanArcade.com, an arcade game rental business. Peterson says he had to call more than 100 insurance agents before he found one willing to work with him.

“Eventually what I did was I started to get my insurance license," he says, "because I thought if no one is going to underwrite this, I’ll underwrite this myself.”

Peterson says the brokers he talked to were okay with the arcade game part of his business: “Then we would say, 'Well, actually, though, we have these independent contractors who work for us, who fill demand across the entire United States.' And that was the point where they just freaked out.”

While she didn't freak out, Ashley Hunter, an insurance broker specializing in risky markets with HM Risk Group, does admit to a certain amount of surprise, confusion and doubt when she received the first inquiry from a potential client about the cost of a policy for his car sharing company.

"I literally looked at him and started laughing and said, 'No one is going to insure this,'” she says. "There’s too many variables. I don’t know who’s using the vehicles. I don’t know when these cars are going to be used. What happens if someone is sharing the car and then it gets stolen? Who’s responsible?”

In the end, Hunter says, she was able to find a policy that worked for the car sharing service, as well as others. Now, she says the sharing industry is a niche she specializes in, as well as other, equally risky to insure industries - like fertility. But she notes that calculating rates for policies and deductibles for businesses like these can be complicated.

Just imagine a possible scenario, says Ted Devine, CEO of Insureon, an online broker specializing in small businesses, many of which share. “You’re an independent programmer; you run into your Uber car; you forget your laptop," he says.

If you work for a big company, says Devine, and leave your laptop in a taxi from a sharing service, or at a co-working space, ready your lawyers, because everyone could get sued. Of the category of risk dealing with cyber data, like the recent Target breach, Devine says: "the sharing economy puts that on steroids.”

Rob Auston, founder of Outdoors.io -- think Airbnb-like site, but for skis, tents, backpacks and other outdoor gear -- says as a young sharing company, he found himself in a Catch-22. Insurers wouldn't provide him with a policy until he had established a solid customer base. But at the same time, it was tricky to find customers willing to rent out their gear without insurance.

"I spent a ton of time talking to insurance companies who just didn't understand our business," he says. "I made the decision to stop wasting time on it and just build the business."

Though he wasn't happy about it, Auston and his partners decided to provide up to $500 of coverage for clients' gear out of their own pockets. He says that now that he has a more fully fleshed out operating business, he's been able to find an insurance broker who is willing to provide coverage and he hopes to have damage and liability coverage in place later this year.

“Sharing sounds so good,” says Christie Alderman, vice president for Chubb Personal Insurance. “Our parents taught us to share when we were toddlers, right? But in this case sharing has some challenges."

Alderman says consumers need to read the fine print on their insurance policies. Especially if they're engaging in paid sharing on either side of the equation. For them, she has this message: "If you want to share, beware."

CORRECTION: An earlier version of this story misspelled the name of Insureon. The text has been corrected.